Communicating with pension scheme members: when is ‘good enough’ good enough?

Helen Powell

Systems are often imperfect and computers sometimes say ‘no’. If you fail to get important information to a pension scheme member about their rights under the scheme, is it enough to have done your best? That will depend on the nature of the duty, and to some extent on the nature of the information involved. Two recent court decisions highlight issues for both administrators and employers providing information to scheme members.

The first decision (NHS Business Services Authority v Leeks) concerned an administrator’s failure to inform a member that she had accrued the maximum possible entitlements under her pension scheme. Had she been aware of the position, she could have retired on a full pension more than two years earlier than she actually did. The Ombudsman held the administrator primarily responsible for the failure and ordered it to pay around GBP110,000 in compensation. The administrator argued that the scheme involved was a complex one, with a large membership; the fault lay in the inherent limitations of its automated system, and this should not count as maladministration. The court, however, took the view that the scale and complexity of the scheme was all the more reason why the administrator should have adequate systems in place. A known deficiency was no excuse, and the existing system fell ‘so substantially below being able to satisfy the reasonable expectations of members’ in relation to the provision of information, as to constitute maladministration.

In another case, Andrews v Kings College NHS Foundation Trust, an employer had sent pensions information to members following its normal method of stapling an information leaflet to the outside of payslip envelopes. It was accepted that there was a risk that some envelopes might be missed when this manual exercise was undertaken, and that some leaflets might later become detached. As a result of not receiving the leaflet, a member failed to take up the opportunity to join the pension scheme and missed out on several years of membership.

An employer has, in some circumstances, an implied contractual duty to draw pension rights to the attention of employees/members. The obligation applies where:

*  the contract includes a term which makes available to the employee a valuable right which is contingent upon action being taken by him; and

*  the employee could not, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention.

Where those conditions apply, an employer may be in breach of the duty if it does not take reasonable steps to draw an employee’s attention to the existence of the right. Had the employer in this case met its duty, given that the delivery system it used was not 100% failsafe? The Employment Appeal Tribunal ruled that it had, because in the case of this particular duty, although the duty is owed to each employee individually, the employer does not have to do more in any individual case than to take reasonable steps to bring the relevant information to the attention of the employee.

The key point is to be aware of the risks and limitations of your systems, whether manual or automated. You shouldn’t simply accept inherent limitations if they can be resolved. Then consider the nature of the duty under which you are providing the information, and the nature of the information you need to provide. Have you done enough to meet your duty to deliver the right information at the right time? Mistakes and system failures can be expensive; trustees and administrators should consider these issues carefully as part of their internal controls monitoring process.

Helen Powell is a PSL Counsel at Allen & Overy LLP.

Comments published on Pensions Talk do not necessarily reflect the views of Allen & Overy or its clients.

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